How we keep score on executive compensation

Elon Musk towered over the highest paid CEOs at publicly traded U.S. automotive companies last year after exercising stock options that skyrocketed his compensation from five figures to 10.

The Tesla Inc. CEO, who usually sits at the bottom of the list because of his penchant for requesting — and refusing to take — California’s minimum wage, posted the largest total CEO compensation by a margin of more than a $1 billion. Musk exercised $1.34 billion in stock options set to expire in 2016, according to the Automotive News/Equilar CEO Compensation study.

His pay increased by 3.6 million percent.

However, Musk’s reported total compensation “was not actually received in cash upon these exercises,” a Tesla proxy statement said. Musk sold $593 million in stock, which was used “solely in order to pay … income taxes related to such exercise,” according to the proxy.

Musk’s compensation increase stems from him meeting several goals in a long-term incentive plan devised by Tesla’s board in 2012, according to Dan Marcec, Equilar director of content and marketing communications.

Tesla’s deal with Musk offers 10 performance-based operational benchmarks and 10 market-capitalization goals rewarded by stock options. For each slice of the stock-option pie, Musk must meet both one operational and one stock-value goal.

Initial options for Musk in 2012 equaled 5 million shares in the company’s stock worth $70 million. Had Musk magically achieved all performance goals in 2012, Marcec said, he would have taken home just $78 million.

Tesla stock has gone up sharply since then. At the end of 2016, it was going for about $200 a share. On Thursday, July 6, at 3 p.m. it was $309.62​ a share, but had dropped 13.6 percent in three days.

Musk exercised options on 6.7 million shares in 2016, averaging about $194 per share in gains for $1.34 billion.

As of April 20, the date of the proxy filing, Musk had reached eight market capitalization milestones and six operational ones.

The operational milestones achieved were completing the Model X alpha and beta prototypes, putting the Model X into production, completing the Model 3 alpha and beta prototypes and overseeing the cumulative production of 100,000 vehicles.

“When an executive’s options vest — or in Musk’s case, when he hits one of his performance goals — that just means that they have the right to purchase shares allowable under the plan,” Marcec said. “If they purchase the shares, then the value is the difference from when it was granted and the date of purchase.”

Top gainers

Ford: $30 million in compensation Photo credit: BLOOMBERG

Behind Musk’s meteoric pay increase was that of KAR Auction Services CEO Jim Hallett, who had the second-biggest compensation gain with a 659 percent jump over the $1,967,033 he earned in 2015 to $14.9 million. Cooper-Standard CEO Jeffrey Edwards took home a 152 percent increase with $10.9 million total compensation.

Thomas Lynch of TE Connectivity once again secured second place on the salary summit, miles beneath Musk, pulling in $32.1 million for the year.

Several Ford executives saw pay hikes in 2016, rebounding strongly from figures the year prior. Former Ford Motor Co. CEO Mark Fields had a 75 percent increase with $16.0 million in earnings last year, but Executive Chairman Bill Ford saw even higher gains, raking in 321 percent more with compensation of $30.1 million. Compensation for Ford CFO Bob Shanks was up 54 percent to nearly $3.8 million, though compensation slid 11 percent for Joe Hinrichs, president of global operations, to $4.1 million.